Correlation Between PIMCO RAFI and Schwab Fundamental
Can any of the company-specific risk be diversified away by investing in both PIMCO RAFI and Schwab Fundamental at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining PIMCO RAFI and Schwab Fundamental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PIMCO RAFI Dynamic and Schwab Fundamental Emerging, you can compare the effects of market volatilities on PIMCO RAFI and Schwab Fundamental and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in PIMCO RAFI with a short position of Schwab Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and Schwab Fundamental.
Diversification Opportunities for PIMCO RAFI and Schwab Fundamental
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between PIMCO and Schwab is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Schwab Fundamental Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental and PIMCO RAFI is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on PIMCO RAFI Dynamic are associated (or correlated) with Schwab Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Fundamental has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Schwab Fundamental go up and down completely randomly.
Pair Corralation between PIMCO RAFI and Schwab Fundamental
Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the Schwab Fundamental. But the etf apears to be less risky and, when comparing its historical volatility, PIMCO RAFI Dynamic is 1.07 times less risky than Schwab Fundamental. The etf trades about -0.05 of its potential returns per unit of risk. The Schwab Fundamental Emerging is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,753 in Schwab Fundamental Emerging on January 26, 2024 and sell it today you would earn a total of 32.00 from holding Schwab Fundamental Emerging or generate 1.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PIMCO RAFI Dynamic vs. Schwab Fundamental Emerging
Performance |
| Timeline |
| PIMCO RAFI Dynamic |
| Schwab Fundamental |
PIMCO RAFI and Schwab Fundamental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PIMCO RAFI and Schwab Fundamental
The main advantage of trading using opposite PIMCO RAFI and Schwab Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PIMCO RAFI position performs unexpectedly, Schwab Fundamental can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Schwab Fundamental will offset losses from the drop in Schwab Fundamental's long position.The idea behind PIMCO RAFI Dynamic and Schwab Fundamental Emerging pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Schwab Fundamental vs. Hartford Multifactor Equity | Schwab Fundamental vs. Hartford Multifactor Developed |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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